Battle for licences an intriguing aspect of Australian footballing landscape

The value of licences to be involved in Australian football competitions is one of the game’s biggest assets at present. How they are measured has become an intriguing discussion in the Australian footballing landscape.

When Silver Lake bought a 33.3 per cent stake into the Australian Professional Leagues (APL) this year for $140 million, it effectively valued the APL at $425 million. The APL control the A-League Men and Women competitions.

With ViacomCBS having a 2 per cent stake in the APL, this left the remaining 64.7 per cent to be split amongst the 12 A-League clubs at around 5.4 per cent each (Canberra United in the women don’t have a stake).

This essentially values each club’s stake in the APL at just under $23 million.

With the A-League looking to expand to 14 teams in the near future, how much each potential expansion club licence holder will be willing to spend to buy in to the APL is an intriguing question.

There were suggestions that Silver Lake’s $140 million investment was negotiated in a way where Silver Lake can recoup their investment at any given time.

Australian and international accounting standards require redeemable shares or investments that can be called back to be recognised as a liability in the balance sheet rather than equity, depending on the terms of the investment. This in effect potentially reduces the net assets or equity value in the APL’s balance sheet.

However, an APL spokesperson confirmed this is not the case and Silver Lake’s stake is made up of S-Class shares, and there is no liability on the balance sheet in relation to their investment.

Silver Lake’s significant investment, especially considering their worldwide reputation, has naturally grown the value of the APL and consequently any licence that may be on offer to join the A-Leagues.

In terms of licence fees clubs have paid in the past, we can examine Western United and Macarthur FC, the two latest clubs to join the A-League. Importantly both joined prior to the independence agreement between FA and the APL.

(Photo by Cameron Spencer/Getty Images)

Western United paid $18 million up front to get into the A-League in 2019-20, while the Bulls were set to pay $12 million for their entrance in 2020-21. However, the terms of both deals were not as clear cut as originally thought.

Western United were apparently due to receive back $14.5 million of their $18 million fee in instalments between 2018 and 2022, while the Bulls were to get back $9.75 million.

The net amount received by FA was therefore said to be only $3.5 million and $2.25 million, respectively.

For Western United, the remaining $14.5 million paid in advance was in effect a security deposit, as was the $9.75 million from the Bulls. This was to ensure both clubs could survive without receiving broadcast money from the 2016 Foxtel deal ($346 million) that existed prior to COVID that was set to expire in 2022.

For the licence fees of both clubs to jump in value significantly from $3.5 million and $2.25 million respectively, in the space of a few years, just because the A-Leagues broke away from FA is unrealistic.

Considering the struggles the A-Leagues are facing at the moment with crowds and broadcast ratings, it’s hard to see how the APL can charge $23 million for a new licence.

A school of thought exists among football fans that licence fees are no more than legalised ‘pyramid schemes’.

The more clubs that buy in, the more money in the organisation which theoretically increases the value of the organisation. So the next buyer pays more and someone cashes in.

This is of course is a cynical and perhaps unfair view of the APL and one that isn’t good for the game.

Such arrangements are usually illegal, of course, and there is no suggestion the APL would engage in such practices.

The impending sale of both the Newcastle Jets and Adelaide United will be telling and give an idea of the true value of each club’s stake in the APL. It is understood the figures being offered for the licences of both clubs is substantial but not at the asking price of existing owners.

An American consortium, led by Brett Johnson and Jordan Gardner, were reportedly well into a deal to buy the Jets, whose licence is currently jointly held by Western Sydney Wanderers, Sydney FC and Western United.

The Pelligra Group have reportedly baulked at paying $22 million to Piet van der Pol for Adelaide. There are suggestions the Reds may go for as high as $26 million but nothing concrete has been publicly released.

It must be pointed out that an existing club’s individual financial position would also impact its sale value. Clubs often have income streams and assets beyond football too. However its investment in the APL, and subsequent income, will likely be its biggest asset and heavily impact its own balance sheet.

So, a purchase of an existing club may be more than $23 million, but the difference would be the other assets held by the club beyond their APL stake.

A new club would likely just pay the value of a stake in the APL for a licence.

APL stakeholders have consistently sold the point that crowds aren’t the APL’s income, and they are for clubs to worry about. The APL’s revenue streams are broadcast rights, A-Leagues sponsors, licence fees etc.

(Photo by Speed Media/Icon Sportswire via Getty Images)

But there is, of course, a perfect correlation between crowds and how they impacts the APL entity. Lower crowds means less A-League sponsors and a lower likelihood people are watching on TV or streaming, which impacts broadcast deals going forward (even though the current deal is at least five years). Less money coming in to the APL then naturally devalues licences.

Also, if clubs are down on their own income, it makes their financial position shaky. With clubs being an investor in the APL, having struggling investors does nothing to help the APL entity as a whole.

Average crowds for the A-League Men is 5759, without including Wellington Phoenix or Perth Glory, who have spent most of 2021-22 away from home, while the ALW sits at around 1320 without the Phoenix or Glory included.

While TV ratings have improved significantly for the A-Leagues due to free-to-air exposure, the numbers are still not at the levels expected.

A Channel 10 spokesperson made the following statement regarding the TV ratings, which are measured by Oztam.

“The Isuzu UTE A-League on Ten is averaging 81,000 national TV viewers, up 391 per cent from the 2020-21 season average on FOX (16,000).

“The Liberty A-League on Ten Bold is averaging 22,000 national TV viewers, up 386 per cent from the 2020-21 season average on FOX (5000).”

While Oztam is an antiquated way of measuring audiences, and doesn’t measure those watching online via 10Play, it is the only option available at the moment.

Five of the six A-League Men games are on ViacomCBS’s streaming platform, Paramount+, while four of the five Women games are on the streaming service.

The numbers watching A-League Men and Women games on Paramount+ haven’t been released yet. They aren’t measured on Oztam, but Paramount+ subscriptions using A-League club codes are well below target.

Interestingly, the $32 million annual cash payment received by the APL from ViacomCBS for Channel Ten and Paramount’s broadcasting rights, may be reduced if subscription numbers for Paramount are not met.

An APL spokesperson confirmed that if Paramount subscriptions using a specific code for A-League clubs aren’t met, there is a potential cash loss. The amount wasn’t confirmed but it is believed to be substantial. Channel Ten have declined to respond to enquiries about this, citing commercial confidence.

All of this makes expansion plans challenging.

Canberra are expected to be the next cab of the rank and were close to securing a licence in 2018, but were beaten to the punch by the Bulls.

(Photo by Speed Media/Icon Sportswire via Getty Images)

The Canberra investors, who have kept a low profile, are believed to be confident a team in the nation’s capital will work but are wary of the APL structure and licensing framework.

Wollongong have been a sentimental favourite for a number of fans to come into the A-League, but the commercial support isn’t there for the Steel City at present.

There were rumours last year that two NPL clubs in Perth were joining forces to put a bid in for a new Perth-based A-League club. There has been little movement though, publicly at least, in this space.

Perth Glory owner Tony Sage has repeatedly expressed his desire to see clubs brought in from Asia, namely Malaysia and Singapore, where he has business ties.

Queensland NPL clubs Gold Coast United and Gold Coast Knights were apparently in discussions proposing a joint bid going forward for a new A-League licence, but judging by Knights president Adrian Puljich’s views on the state of the game on a podcast a few weeks ago, this may seem unlikely for now.

Puljich believes there is a risk the A-League may go under if it goes head to head with the proposed National Second Division (NSD).

Interestingly, both United and the Knights have not joined the race to be part of the proposed NSD, which is supposed to start next year. United were not a signatory to the AAFC report released last month, and Puljich made it clear the Knights have no interest in joining a second-tier competition.

The value of licences is also an interesting discussion when it comes to the NSD. While NPL clubs are not-for-profit entities essentially owned by members (fans), how their ownership framework will change if a NSD comes in will be fascinating to see.

With a number of clubs having connections to rich benefactors, that may want to invest if a genuine second tier happens, how this investment is shaped will be crucial for the survival of the clubs and the competition.

While some NPL clubs will not ‘sell out’ to private buyers, there will be others that will need the private ownership model to survive. The only incentive to get involved for private owners would be if there was potential for their licences or shares to grow in value as time goes on.

FA have engaged well-respected consultant Anter Isaac from sports consultancy firm Kleinmann Wang to advise what model they should use for the implementation of the second tier.

AAFC’s report, released last month, indicated an NPL Champions League format is FA’s preferred option, but FA haven’t confirmed this will be the final model.

A Champions League format is just an expansion of the current National NPL finals series and is seen as a waste of time and money by a number of NPL clubs and their fans.

The AAFC prefer a 12-team home-and-away league initially, expanding to 16 teams in its formative years.

Despite the financial challenges faced by football, there is always room for optimism. The fact new clubs want to join the A-League and so many clubs want a second tier indicates there is ambition and potential investment there. How it is all framed and structured is the key to football finally reaching its potential.